Abstract

This thesis studies economic growth and pollution control in a Schumpeterian model with endogenous rate and direction of technical change. Economic growth results from growth in the quantity and productivity of polluting intermediate goods. Pollution is linked to the quantity of intermediates. Productivity growth is not directly polluting but has an indirect effect on pollution which is a priory ambiguous: Higher productivity helps to use polluting inputs more efficiently and decrease their share in GDP. However, it also increases their marginal product, which stimulates intermediate demand and may thereby reduce or offset possible efficiency gains. The latter is called a rebound effect. Pollution growth can be controlled by lowering the pollution intensity of a given quantity of intermediates through costly research (green innovation) and by restricting the rebound effect of productivity growth by decreasing the share of intermediate quantity in GDP. Without clean substitutes, saving on polluting inputs implies that potential GDP and consumption growth is foregone (deceleration). While neither green innovation nor deceleration is chosen under laissez-faire, both contribute to long-run optimal pollution control for empirically relevant parameter values. Neglecting either possibility to restrict pollution growth weakens the prospects for persistent economic growth in the long-run optimal solution as well as the long-run optimal growth rate. A substantial share of worldwide emissions is generated by the use of exhaustible resources like fossil fuels. In an extension of the baseline model, the effects of resource scarcity on the environment, long-run growth and the direction of technical change are analyzed. It is shown that the need to restrict pollution growth may reduce optimal resource use in a way that the resource is never exhausted in the optimal solution if the initial stock is large enough.